Minimum Wage

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Contrary to Economics 101 dogmas, minimum wage law has no harmful effects on employment according to many real-world studies. And definitely not the harmful effects long claimed by its opponents. Minimum wage does effectively reduce poverty.

Libertarians claim their opposition is because they consider minimum wage to be government interference with markets for labor. Roughly 150 years ago, people who made that same claim started the US Civil War to prevent the federal government from abolishing the ancient and customary practice of slavery. How dare the feds suggest that they must pay black people rather than keep them as slaves? What an unwarranted federal interference in business and markets! Sarcasm aside, what this illustrates is that freedoms exist within institutions which distribute the powers and freedoms to the participants. If a labor market does not permit slavery, it is not fundamentally different than if a labor market does not permit wages below a certain point. The federal government (and others) regulates the labor market. In 2018, the minimum wage would be $26/hour if it had kept up with inflation and increases in productivity.

Links

Adam Smith on how to make the working class happier and more productive: pay them more [More...]
That famous socialist Adam Smith says: "If masters would always listen to the dictates of reason and humanity, they have frequently occasion rather to moderate, than to animate the application of many of their workmen."
Arindrajit Dube's Testimony on the Minimum Wage to the U.S. Senate [More...]
Has a one page executive summary that notes the key points on inequality, employment, turnover and frictions, prices, poverty, and complementarity with EITC.
Busted: The Sad Data Manipulation of Prof Mark Perry [More...]
"Perry has now suffered the most grave of indignities – he was recently busted for inappropriately mixing and matching two totally disparate datasets to further his making disingenuous anti-minimum wage arguments [...]"
Confronting the Parasite Economy [More...]
Why low-wage work is bad for business -- and all of us. Corporations that pay low wages impose welfare costs on the rest of society. Minimum wage is one way to prevent this problem.
Econ 101 No Longer Explains the Job Market [More...]
"Together with the evidence on minimum wage, this new evidence suggests that the competitive supply-and-demand model of labor markets is fundamentally broken. If employers have the power to set wages, then not just minimum wage, but other labor market policies -- for example, union-friendly laws -- can be expected to help workers a lot more than popular introductory economics textbooks now predict."
Economics in Two Lessons: Why Markets Work So Well, and Why They Can Fail So Badly (book)
An excellent academic (but readable) rebuttal to the propaganda in Economics in One Lesson, the fallacies of Economics 101, some Chicago Economics and some Austrian Economics. Very simply, markets do not take into account ALL opportunity costs.
Economists agree: Raising the minimum wage reduces poverty [More...]
Arin Dube has published a paper showing that even studies by opponents of minimum wage show large reductions in poverty as a result.
Firm Market Power and the Earnings Distribution [More...]
Market power, a form of market failure, produces a positive relationship between a firm's labor supply elasticity and the earnings of its workers. This paper provides empirical evidence measuring market power and showing that employers with more power pay lower wages. Especially at lowest incomes.
Increasing the minimum wage does not necessarily reduce employment [More...]
A brief survey of the literature suggesting this and some explanations of why the Economics 101 claim is both measurably and theoretically wrong.
No, raising the local minimum wage doesn’t hurt local businesses [More...]
"Businesses don’t appear to relocate in response to local minimum-wage increases (at least not enough to create significant job losses) for several reasons."
The bogus case against the minimum wage hike [More...]
Dean Baker and John Schmidt point out that measured imp[acts of minimum wage show not job losses and that even if job losses occurred, the low-wage workers would be better off on average.
The Legislative Attack on American Wages and Labor Standards, 2011–2012 [More...]
There has been a huge, nationwide, state-level attack on workers led by ALEC and others. "This policy agenda undercuts the ability of low- and middle-wage workers, both union and non-union, to earn a decent wage."
The Minimum We Can Do [More...]
Raising the minimum wage reduces poverty, has next to zero effect on employment, complements Earned-Income Tax Credit, benefits labor markets by reducing turnover, and has widespread support for its fairness.
The Social and Moral Philosophy of the Minimum Wage [More...]
Brad DeLong points out that maximizing real income per capita is a choice that does not escape the problem of interpersonal value comparisons, and thus cannot pretend to be dispassionately utilitarian.
Why Does the Minimum Wage Have No Discernible Effect on Employment? [More...]
"The employment effect of the minimum wage is one of the most studied topics in all of economics. [...] The weight of that evidence points to little or no employment response to modest increases in the minimum wage."
Why the 101 model doesn't work for labor markets [More...]
The Econ 101 supply-and-demand model is just not a good description for the labor market. Supply-and-demand graphs are for one single commodity; labor is highly heterogeneous.

Quotations

The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.
Joan Robinson, in Marx, Marshall And Keynes